Top European economist questions Turkey’s low interest rate policy

A high level banker raised concern in meetings with Turkish government officials over their rate-cutting policy of key central bank interests, Reuters reported. 

Odile Renaud-Basso, president of the European Bank for Reconstruction and Development (EBRD), held what she called “frank and transparent” meetings with Turkey's Finance Minister Nureddin Nebati and Sahap Kavcioglu, the central bank governor while visiting Turkey. 

She said she found Turkish economic policies to drive economic growth with low interest rates as “quite outlier” but authorities "are convinced that their policy is the right one." 

"I expressed some question marks about the fact that it (the policy) creates inflation, with a high level, and it is not necessarily the best environment for long-term investment," she said.

A year ago President Tayyip Erdogan's government adopted an unorthodox policy of creating monetary stimulus via low interest rates meant to stoke exports and economic growth with the aim of flipping chronic current account deficits to surpluses.

"I don't know whether it can work or not. But it creates some challenges in anchoring inflation expectations and creating a secure and stable environment," Renaud-Basso said. 

Turkey is the largest market of EBRD which has invested in the country $16.5 billion in hospitals, roads, green projects and other efforts since 2009